When you make a sacrifice, you're usually giving up something with the expectation of future gain.
Salary sacrificing into your super is no different—you’re giving up money that would otherwise be in your take-home pay. But in return, you’re boosting the amount you have in retirement and saving on tax.
How does it work?
Under the current rules, you can arrange to put extra cash into your super from your before-tax salary and it will only be taxed at 15%,1 which is a considerable tax saving for most people on their usual marginal tax rate. You can contribute up to a limit (or cap) of $25,000 per year.
Remember, the before-tax contributions that count towards the cap typically include:
- compulsory contributions paid by your current employer, such as the super guarantee
- contributions from any previous or other jobs you may have held in the same financial year
- contributions you are claiming as an income tax deduction
- notional taxed contributions if you are a member of a defined benefit fund.
1 - Or 30% if you earn $250,000 a year or more.
Salary sacrifice checklist
If you decide that you want to go ahead with salary sacrificing into your super, here’s a handy checklist to ensure you’ve ticked all the boxes.
- Make sure that you can salary sacrifice. Does your employer allow salary sacrifice? If not, you may be able to achieve the same benefits by making personal tax deductible super contributions instead.
- Decide how much and how often. Will you salary sacrifice on an ongoing basis or as a one-off contribution?
- Plan ahead. You can’t salary sacrifice income you’ve already earned, so plan ahead if you want to salary sacrifice bonus or leave entitlements.
- Notify your employer. If you can salary sacrifice, contact your employer’s payroll team to find out what information they need. If you’re an AMP super customer, here’s an email you can send to your payroll department.
- Get the agreement in writing. Make sure you know when your contributions are going to be paid, such as monthly or fortnightly. Get the agreement in writing from your employer and check your contributions are being received.
- Ensure you don’t exceed the $25,000 before-tax contributions cap. If your super’s with AMP you can easily view your super balance and contributions by registering or logging in to My AMP. You can also download the AMP app to set up notifications which will alert you to when super contributions have been made and when you are nearing the cap.
Take advantage of the new financial year
With the new financial year here, it’s a great time to get your salary sacrifice arrangement in place–this way you’ll be able to maximise your before-tax contributions and minimise your tax over the course of the year. You’ll soon see the difference when you next look at your super balance.
This online learning module makes super easy to understand.
We look at the average super balances for different age groups in Australia so you can see how your super savings compare.